A Q-theory model with lumpy investment

We present an analytically tractable dynamic stochastic general equilibrium model that incorporates micro-level fixed and convex adjustment costs. We provide an explicit characterization of equilibrium dynamics by a system of nonlinear stochastic difference equations. We provide general conditions under which our model features investment lumpiness at the microeconomic level, but aggregate dynamics are isomorphic to those in a Q-theory model without fixed costs. This theoretical result is independent of the specification of the fixed cost distribution and also holds true when firms face persistent idiosyncratic productivity shocks.